Withdrawal or surrender charges come into play when annuity owners withdraw all or part of the money in the annuity "early" or before the end of the term stated in the contract.
Surrender charges are often a percentage of the amount the is taken-out of the annuity "early."
If, for example, the indexed annuity owner takes what is considered to be an "excess" withdrawal during the first year, then the 8 percent surrender charge would apply to the amount of that excess withdrawal.
Surrender charges and schedules vary from product to product, so understanding the particulars of a given annuity requires looking at the actual contract.
All of the above said, most annuity contracts will feature some type of free withdrawal provision. The free withdrawal provision will allow the contract owner to make one (or more) withdrawals during a given year without incurring a surrender charge. Certain annuities will also allow free withdrawals for health-related issues such as a terminal illness or nursing home scenario.
Again, the amount and timing of any free withdrawal provision will differ from product to product, so you must refer to the contract to determine the specifics for the annuity you are considering or own.